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Thursday, January 22, 2009

If you owe money to the IRS, you have many options legally available to you, to help you solve your tax problems.

Full Payment

The first option is the simplest and most straight-forward. You can simply pay off the outstanding tax balance. This assumes you have the resources to do so. You could either pay from current funds on hand or from borrowed funds. Once your account is paid in full, all collection activity will cease. Any outstanding liens and levies will be automatically removed. Unfortunately, not everyone can afford to make full payment. If you were able to make full payment to the IRS, you probably wouldn’t have a tax problem .

Installment Agreement

If you cannot afford to pay in full your past tax liability, you can request for an Installment Agreement. An installment agreement is effectively a loan from the IRS. There is no credit check although penalties and interest will continue to be charged until the balance is paid off. This will allow you to pay off your tax liability through monthly installments.

The installment agreement may pay all (Full Pay) or part (Partial Pay) of your past tax liability.

If your total tax debt is less than $25,000 the IRS may consider you for a streamlined installment agreement under which you must complete the payment of your tax within 60 months. This type of installment agreement typically does not require as much financial disclosure. If you cannot pay the amount within 60 months, you must make full financial disclosure of your income, expenses and assets. These Installment Agreements can be much more difficult to obtain.

You must file Form 433-A or 433-B (or both). The IRS will analyze your Form 433-A or 433-B and use the information to determine the amount you can pay monthly. Your monthly income is compared to actual expenses and the amount of expenses considered “allowable” by the IRS. These allowable expenses may be much lower than what you are actually paying. The IRS ultimately has the discretion to decide on the payment amount.

Offer-in-Compromise

In certain limited circumstances, the IRS has the authority to settle, or compromise, federal tax liabilities by accepting less than full payment. This is what is known as an offer-in-compromise. By making an offer-in-compromise, you agree to pay less than the full amount of the taxes owed by you. The IRS has the discretion to accept less than the full amount of taxed owed by you based upon doubt as to your liability (whether you actually owe the taxes) or based upon collectibility (you do not have the resources to pay the amount owed).

If there is no doubt about your liability or collectibility, but an exceptional circumstance exists, then the IRS may still consider an offer in compromise. To be eligible on this basis, you must demonstrate that collection of the tax will create an economic hardship or will be unfair and inequitable.

Currently-not-Collectible

Currently-not-Collectible status means the taxpayer does not presently have the ability to pay their tax debts. The IRS uses this status to protect taxpayers from hardships that can be caused by collection activity. To qualify for Currently-not-Collectible status, your allowable expenses must exceed or come close to exceeding your income. The IRS will also consider your assets before placing your account into Currently-not-Collectible status.

Once your account in placed in Currently-not-Collectible status, the IRS will stop all collection activity including levies and garnishments. The IRS will send you an annual statement stating the amount of tax still owed. Your account will be reviewed periodically to determine if your financial situation has changed and whether you still qualify to be classified as Currently-not-Collectible.

While your account is in Currently-not-Collectible status, the IRS will continue to add interest and penalties but it will not try to collect the taxes from you. When your account is placed in Currently-not-Collectible status, you must continue to file your returns each year to remain eligible for the status.

Bankruptcy

Bankruptcy proceedings discharge certain taxes including federal income taxes. Federal income taxes can be discharged in a Chapter 7 bankruptcy proceeding. Many penalties and other assessments can be discharged through a Chapter 13 payment arrangement. Payroll tax liabilities cannot be discharged in bankruptcy.

Statute of Limitations

The IRS does not have forever to collect the money that you owe them. They cannot chase after you for the rest of your life. There is a 10 year statute of limitation for collecting tax (6 years for assessments of tax or levy made on or before November 5, 1990).

This 10 year period begins to run on the day after the date of assessment. The statute is extended for the period of time you have a Bankruptcy filed and pending. The statute is also extended during the time you have submitted an offer-in-compromise and are waiting for an approval. This 10 year statute of limitation can be extended by mutual agreement if the agreement is made within the 10 year period.

About The Author

Larry M. Weinstein, CPA, Certified Tax Resolution Specialist is the Director of the Nat'll Tax Practice for http://www.SolveMyTaxProblems.com, and has developed a 7 Step Proprietary Process known as, the “Strategic IRS Tax Problem Resolution Process” and is the author of “The 7 Things You Must Know Before Solving Your IRS Problems-Learn How to Solve Your Problem as Quickly and Painlessly as Possible.”, a copy of which is available at the website.

If the IRS doesn't collect the full amount in the 10 year period, then the remaining balance on the account disappears forever. All collection activity by the IRS must stop at this time.